SpaceSashimi wrote:Can someone explain the Vanguard Prime Money Market Fund in depth to me. Is it just a temporary account to hold your money until you know what to do with it?
Pretty much, yes. It's also usually the "settlement account" for everything that happens in your account. When you sell a mutual fund, the proceeds of the sale typically end up in that account.
Does it make interest if left there awhile?
For over thirty years, from 1975 to 2008, it always did, often quite a lot. It was
earning around 5% in 2007. Like most money market accounts, it always used
to earn more than bank accounts.
But in the last few years the interest rate on all safe cashlike investments has dropped to almost nothing. And although money market funds always used to earn more than bank accounts, that's not true any more. It is currently is earning 0.01% which is basically zero.
Why does it have an expense ratio?
Because it's a mutual fund and mutual funds are required to give that information. However, all stated performance numbers are after expenses, so the 0.01% you see is what you get. You aren't losing 0.15% per year in the fund.
Should I keep anything in it?
They used to be great places to keep cash. Not any more.
You probably need to have one as a settlement account. A staging area for buying and selling. If you link your bank account, you can purchase mutual funds directly out of your bank account but there's a delay. Money that has been moved into the money market fund, and that is showing as available for purchase, can be used to purchase a mutual fund immediately.
You should avoid keeping large amounts of money in this account for very long, because it earns less than an ordinary bank savings account. Don't feel there's any big rush to get dollars out of it and into the bank instantly; just do the math. For example, if you kept $10,000 sitting in this account, it would be earning $1 a year
, while in a good Internet bank account it could be earning $75 a year. And theoretically it's less safe than a bank account, because it isn't FDIC-insured.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.